In 2010 more people became eligible for a Roth IRA, the retirement account in which earnings and distributions are tax-free.
Now anyone, regardless of income, can convert a traditional IRA to a Roth. Even better, the government is encouraging us to convert by allowing us to pay the tax on this money over two years -- 2011 and 2012 -- says Thomas J. Casey, a Certified Financial Planner with Casey, Thomas & Associates in Shelton, Conn.
But if you decide to postpone any tax bill, remember the likelihood of higher rates in 2011 and beyond.
Another impending tax, the Medicare tax on high earners, also has created more incentive to convert to a Roth. This tax is part of the health care reform law and will apply to investment income of higher earners starting in 2013.
"A Roth comes out tax-free, so when taking out this money, it wouldn't count toward that tax," says Mark Luscombe, principal tax analyst with tax publishing company CCH in Riverwoods, Ill.
So explore whether moving to a Roth is right for you. And run the numbers to determine whether you should pay all your Roth conversion taxes this year at lower rates.